Question

Comparative and absolute advantage

Sam and Teresa are farmers. Each one owns a 20-acre plot of land. The following table shows the amount of rye and corn each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing rye or corn or to produce rye on some of the land and corn on the rest.

	Rye	Corn
	(Bushels per acre)	(Bushels per acre)
Sam	18	9
Teresa	40	8

*On a graph, use the blue line to plot Sam's production possibilities frontier (PPF), and use the purple line to plot Teresa's PPF.

???has an absolute advantage in the production of rye, and ???has an absolute advantage in the production of corn.

Sam's opportunity cost of producing 1 bushel of corn is ???bushels of rye, whereas Teresa's opportunity cost of producing 1 bushel of corn is ??? bushels of rye. Because Sam has a ??? opportunity cost of producing corn than Teresa, ??? has a comparative advantage in the production of corn, and??? has a comparative advantage in the production of rye.

Answer 1

	Rye	Corn	Total production(Multiply by 20)
	(Bushels per acre)	(Bushels per acre)
Sam	18	9	18x20 =360 9x20=180
Teresa	40	8	40x20 =800 8x20=160

Use the values to the right to demonstrate the PPF curve:

Teresa has an absolute advantage in the production of rye, and Sam has an absolute advantage in the production of corn.

Sam's opportunity cost of producing 1 bushel of corn is 18/9 =2 bushels of rye, whereas Teresa's opportunity cost of producing 1 bushel of corn is 40/8= 5 bushels of rye. Because Sam has a lower opportunity cost of producing corn than Teresa, Sam has a comparative advantage in the production of corn, and Teresa has a comparative advantage in the production of rye.